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Energy Investing in Saskatchewan

02/22/12 by  
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Tom MacNeill doesn’t have to go far to find the most unique early-stage energy companies to invest in. The President and CEO of Saskatchewan-based investment firm 49 North Resources, MacNeill is bullish on his own backyard, and says of the province’s resources, “You name it, we’ve got it.” In this exclusive interview with The Energy Report, he explains why Saskatchewan resource plays trump their Alberta or Ontario counterparts.

The Energy Report: Even some of the most successful small-cap resource investors were schooled in 2011. What did you learn from last year’s ups and downs?

Tom MacNeill: We were definitely reminded of the nature of resource investments. Liquidity absolutely vanished in 2008, but by the time it reappeared in 2009 and 2010, investors had decided they wanted to keep their hands on their cash. Oil entered and exited 2011 at roughly the same price, but at times it had been much higher and much lower. That spooked investors. It became evident that most of the investors who were still comfortable with equity investments preferred dividend paying structures. It’s been a very edgy time.

We were reminded that investors were walking on thin ice. The companies that stepped up and started increasing distributions from their oil and gas production were well served. Those that did not, were not. There’s been a bifurcation in the market. The entire capped energy index is down relative to most of the broader indexes for the simple reason that investors were withdrawing money from the sector even though one barrel (bbl) of oil was about $100 throughout the year.

TER: Will the legacy of 2011 be the split between those companies that brought in dividends and those that didn’t?

TM: It’s one of the legacies. A lot of companies die in the aftermath of an event like the 2008 downturn. However, not enough undeserving companies died off because they had just completed financings and had millions of dollars in their treasuries that enabled them to weather the storm. We didn’t have enough of a rout.

Going into 2011, there were still a bunch of these Johnny-come-latelies and investors got wise. They started to watch the burn rate and what management was doing. It was a wakeup call. It was a really bad year in ’08, it was OK in ’09 and ’10, and then ’11 leveled as investors became objective. I believe that investors are more objective this year than they have been in five years.

TER: Your company doesn’t just invest in resource companies, it also instills management teams and brings in consultants with specific expertise. It’s an investor and a partner.

TM: We’ve had to be a little bit of everything within 49 North. We act as in-house management for developing companies. We provide seed capital and later-stage capital. We’ve got 25-plus of the best geoscientists in Saskatchewan on staff in one of our subsidiary companies, Northrim Exploration Ltd. That enterprise works with most of the senior players working in the province developing potash, oil and gas, and other sedimentary resources and is moving into hard rock mining consultation.…

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